Question

As sales manager, Joe Batista was given the following static budget report for selling expenses in the Clothing Department of Soria Company for the month of October.

SORIA COMPANY
Clothing Department
Budget Report
For the Month Ended October 31, 2020





Difference


Budget


Actual

Favorable
Unfavorable
Neither Favorable
nor Unfavorable
Sales in units
7,900

11,000

3,100
Favorable
Variable expenses






    Sales commissions
$2,054

$2,860

$806
Unfavorable
    Advertising expense
869

770

99
Favorable
    Travel expense
3,476

4,950

1,474
Unfavorable
    Free samples given out
1,659

1,210

449
Favorable
       Total variable
8,058

9,790

1,732
Unfavorable
Fixed expenses






     Rent
1,900

1,900

–0–
Neither Favorable nor Unfavorable
     Sales salaries
1,100

1,100

–0–
Neither Favorable nor Unfavorable
     Office salaries
800

800

–0–
Neither Favorable nor Unfavorable
     Depreciation—autos (sales staff)
600

600

–0–
Neither Favorable nor Unfavorable
       Total fixed
4,400

4,400

–0–
Neither Favorable nor Unfavorable
Total expenses
$12,458

$14,190

$1,732
Unfavorable

As a result of this budget report, Joe was called into the president’s office and congratulated on his fine sales performance. He was reprimanded, however, for allowing his costs to get out of control. Joe knew something was wrong with the performance report that he had been given. However, he was not sure what to do, and comes to you for advice.

Prepare a budget report based on flexible budget data to help Joe. (List variable costs before fixed costs.)

Answer 1

	Budget	Actual	Difference
Sales in units	11000	11000
Variable expenses
Sales commissions	2860	2860	0	Neither Favorable nor Unfavorable
Advertising expense	1210	770	440	Favorable
Travel expense	4840	4950	110	Unfavorable
Free samples	2310	1210	1100	Favorable
Total variable	11220	9790	1430	Favorable
Fixed expenses
Rent	1900	1900	0	Neither Favorable nor Unfavorable
Sales salaries	1100	1100	0	Neither Favorable nor Unfavorable
Office salaries	800	800	0	Neither Favorable nor Unfavorable
Depreciation—autos (sales staff)	600	600	0	Neither Favorable nor Unfavorable
Total fixed	4400	4400	0	Neither Favorable nor Unfavorable
Total expenses	15620	14190	1430	Favorable
Workings:
Variable expenses
Sales commissions	2860	=2054/7900*11000
Advertising expense	1210	=869/7900*11000
Travel expense	4840	=3476/7900*11000
Free samples	2310	=1659/7900*11000